NORTHERN POWERHOMES A GREEN RECOVERY PLAN TO DECARBONISE HOMES IN THE NORTH - Marcus Johns and Sarah Longlands

 
NORTHERN POWERHOMES A GREEN RECOVERY PLAN TO DECARBONISE HOMES IN THE NORTH - Marcus Johns and Sarah Longlands
Institute for Public Policy Research

NORTHERN
POWERHOMES
A GREEN RECOVERY
PLAN TO DECARBONISE
HOMES IN THE NORTH

                     Marcus Johns and
                     Sarah Longlands
                     November 2020
NORTHERN POWERHOMES A GREEN RECOVERY PLAN TO DECARBONISE HOMES IN THE NORTH - Marcus Johns and Sarah Longlands
ABOUT IPPR NORTH
IPPR North is the dedicated think tank for the north of England, with
bases in Manchester and Newcastle.
IPPR, the Institute for Public Policy Research, is the UK’s leading
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with our main office in London.
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services and environmental protection or improvement; and to relieve
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ill-health, disability, financial hardship, or other disadvantage.
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SC046557 (Scotland)
This paper was first published in November 2020. © IPPR 2020
The contents and opinions expressed in this paper are those of the
author only.

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NORTHERN POWERHOMES A GREEN RECOVERY PLAN TO DECARBONISE HOMES IN THE NORTH - Marcus Johns and Sarah Longlands
CONTENTS

Summary: A roadmap for decarbonisation.............................................................3
1. Introduction.................................................................................................................6
   1.1 Decarbonisation as a path to a net zero future............................................6
   1.2 Decarbonisation as economic stimulus......................................................... 7
   1.3 Decarbonisation as a pathway to better health and wellbeing............... 7
   1.4 The policy context for housing decarbonisation......................................... 7
   1.5 Housing decarbonisation: a driver of post Covid-19 recovery..................8
2. A roadmap for green economic stimulus: The task and its benefits............9
   2.1 The scale of the task ...........................................................................................9
   2.2 Retrofit and energy efficiency measures..................................................... 11
   2.3 The economic case for housing decarbonisation in the North............. 11
   2.4 Consumer savings from reducing fuel poverty and energy efficiency....14
   2.5 The scale of investment required to decarbonise the North’s homes...16
   2.6 Our proposal: A home improvement programme for the North............ 17
   2.7 Funding the home improvement programme............................................18
3. Retrofitting our skills system for housing decarbonisation........................ 20
   3.1 The jobs challenge of housing decarbonisation........................................20
   3.2 Can the skills system meet the challenge?................................................. 21
   3.3 Conclusions ........................................................................................................25
4. A roadmap for change: clearing the hurdles....................................................26
   4.1 A long-term commitment to a net zero agenda for
      housing decarbonisation...................................................................................26
   4.2 Develop a clearer understanding of housing stock conditions ............ 27
   4.3 Support market transformation to deliver at scale.................................. 27
   4.4 Adopt a neighbourhood approach to maximise outcomes....................28
   4.5 Work with consumers to raise awareness and maximise impact..........28
5. Decarbonising the North’s housing: A strategy to support levelling up.......29
   Key recommendation 1: A home improvement programme for the North..... 29
   Key recommendation 2: Building a stronger, more responsive,
     and localised skills system to deliver the home improvement
     programme for the North.................................................................................. 31
   Further national recommendations for central and local government.....32
References.....................................................................................................................33

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NORTHERN POWERHOMES A GREEN RECOVERY PLAN TO DECARBONISE HOMES IN THE NORTH - Marcus Johns and Sarah Longlands
ABOUT THE AUTHORS
    Marcus Johns is a research fellow at IPPR North.

    Sarah Longlands is director of IPPR North.

    ACKNOWLEDGEMENTS
    We would like to thank the Northern Housing Consortium, Halton Housing, Thirteen,
    Together Housing Group, and Liverpool City Region Housing Associations for their
    generous support. We are very grateful to the people who joined two roundtable
    events held as part of this project and to all those gave up their time to speak to
    us via one-to-one interviews. We would also like to thank Jonathan Webb, Joshua
    Emden, and Luke Murphy for their helpful input into this report and our thinking
    behind it. Thanks also to Anna Round for her skilful advice as well as to Rosie
    Lockwood for her guidance.

    We are indebted to Richard Maclean and Abi Hynes for their skill and expertise in
    designing and producing this report.

    Download
    This document is available to download as a free PDF and in other formats at:
    http://www.ippr.org/research/publications/northern-powerhomes

    Citation
    If you are using this document in your own writing, our preferred citation is:
    Johns M and Longlands S (2020) Northern powerhomes: A green recovery plan to decarbonise homes
    in the North, IPPR North. http://www.ippr.org/research/publications/northern-powerhomes

    Permission to share
    This document is published under a creative commons licence:
    Attribution-NonCommercial-NoDerivs 2.0 UK
    http://creativecommons.org/licenses/by-nc-nd/2.0/uk/
    For commercial use, please contact info@ippr.org

2   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
NORTHERN POWERHOMES A GREEN RECOVERY PLAN TO DECARBONISE HOMES IN THE NORTH - Marcus Johns and Sarah Longlands
SUMMARY
A ROADMAP FOR DECARBONISATION

There is huge potential for economic stimulus provided by a programme of
housing decarbonisation in the north of England. Not only are warmer, healthier
homes with lower emissions crucial to our journey to a net-zero carbon future,
but they could also form a key element in the government’s efforts to ‘level up’
the North’s economy in a time of pandemic.

Direct emissions from housing need to be reduced by 24 per cent by 2030 to meet
the UK’s Paris Agreement commitments, and further impetus is required to meet
the legally binding net zero 2050 target, let alone the 2030-2040 targets of many of
the North’s local authorities. But sufficient progress is not being made and a fresh
drive is needed to decarbonise housing.

Many people in the North have been left behind with regional inequalities set to
worsen in the context of the Covid-19 pandemic. Poor housing (the worst in Europe)
combined with low incomes and rising unemployment have left many people with
a bleak future. A new ambitious programme of decarbonising the North’s housing,
starting with social housing providers, could help restart the recovery and provide
a much needed plan for a specific economic intervention that contributes to the
government's much-discussed agenda of ‘levelling up’.

Decarbonising the North’s housing to support jobs and household incomes
Mapping out a clear pathway to decarbonise household heating and hot water
systems based on shovel ready technology for decarbonisation would involve:
•   retrofit measures to improve energy efficiency in over 5 million
    northern households
•   replacing polluting heating systems with heat pumps in 4.6 million
    northern homes
•   1.1 million northern homes being connected to heat networks.

In achieving this, this report finds that 77,000 direct jobs in the North and 111,000
indirect jobs across the UK could be created by 2035 with a lifetime investment
in the programme of £143 billion required. Annually, those jobs could generate
£3.85 billion GVA direct in the North and an additional £5.61 million indirect GVA
in supply chains around the country.

Social housing providers are the key players, with demonstrable historic capacity
to deliver home improvement projects and the scale available to drive supply
chain development.

The report finds that their catalytic role could unlock decarbonisation for housing
of other tenures by driving supply chain growth, pushing down costs, and driving
up skills development over time.

To retrofit all of the North’s social housing stock, pump priming the wider economy
for a larger programme, would require a total investment of £2.36 billion a year
over a 10-year period, half of which (£1.18 billion) should be committed, as a
minimum, by government in grant funding.

Retrofitting our skills system to deliver the green homes stimulus
To maximise the impact of the economic stimulus outlined above, we must address
the demand and supply led challenges within the labour market. Our research has
found that there are still too few firms with the expertise and knowledge of the

           IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North   3
NORTHERN POWERHOMES A GREEN RECOVERY PLAN TO DECARBONISE HOMES IN THE NORTH - Marcus Johns and Sarah Longlands
housing retrofit market to meet existing demand, let alone the stimulus package
    outlined above. There is work to be done to help support existing firms to diversify
    as well as support young people currently training to be plumbers, plasterers and
    heating engineers to consider specialising in housing decarbonisation. Crucially,
    with levels of unemployment rising across the North, the decarbonisation of
    housing could provide a source of new jobs, skills and training opportunities
    for people who have lost their job during the pandemic.

    Many social housing providers already do much to drive skills and demand in their
    own organisations, including skills support for their technical teams and through
    their supply chain. But more could be done, particularly in partnership with local
    colleges, local enterprise partnerships, institutes of technology and the energy
    hubs. In addition, the research finds that there are opportunities within colleges
    to raise awareness of retrofit careers amongst prospective and existing students.
    Greater devolution of skills and employment support to combined authorities
    could also play a pivotal role in helping the North to become a leading centre
    for excellence in housing decarbonisation.

    KEY RECOMMENDATIONS
    1. A home improvement programme for the North
    The government should commit to a 10-year programme of targeted investment in
    decarbonising the North's social housing stock. We recommend that government
    make an annual investment of £1.18 billion of pump priming investment which would
    be matched by social housing providers. This could provide market transformation
    at scale helping to build demand, develop supply chains, promote technological
    pathways, drive long term cost reductions, and build skills. To maximise impact, we
    also recommend the following.
    •    A regional audit of housing stock across the North to produce better data
         with which to target investment and key housing stock archetypes.
    •    Develop a menu of options for decarbonising housing by co-ordinating the
         regional audit above and the experience (as it develops) of decarbonisation
         in the social housing sector, helping share knowledge, provide social housing
         providers with confidence in technological pathways, and provide private
         owners with options and confidence. This menu could also be used to
         determine acceptable interventions for future government schemes.

    2. A stronger more responsive and localised skills system fit to deliver the work
    The government and stakeholders should seek to increase skills demand.
    •    Social housing providers should ‘lead by example’ by offering training
         accreditation to their own technical teams as well as from within their
         own supply chain through the procurement process.
    •    Implement a programme of awareness raising about the business opportunities
         of retrofit which targets firms in the North, including plumbers and heating
         engineers. This could be coordinated by the energy hubs and NP11.
    •    Pilot a regional housing public campaign. Over a 12-month period, a public
         campaign to raise awareness of decarbonised home heating choices, as well
         as advertising the funding support available. This should also include active
         participation from the public, for example, citizens’ juries with social housing
         tenants and tradespeople.

    Key actors including central and local government, local colleges, and social
    housing providers should strengthen the supply of skills for decarbonisation.
    •   The Department for Business Energy and Industrial Strategy (BEIS) should work
        closely with the Department for Education (DfE) to examine how enrolment
        timetables within further education (FE) can be made more flexible so as to

4
4   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
increase supply of places for trades skills, with the option to pilot a different
        approach in the North. This could form part of the forthcoming FE white paper.
•       BEIS and the energy hubs should work with housing providers to pilot
        incentive schemes for northern-based firms which subsidise training and
        accreditation opportunities in low-carbon heating systems.
•       Social housing providers should develop partnerships with their local colleges
        and LEPs' (local enterprise partnerships) employment and skills boards to get
        their help in making retrofit skills a priority for economic recovery.
•       Combined authorities with devolved responsibility for adult skills budgets
        should be encouraged to prioritise retrofit skills to boost take-up.

3. Additional recommendations
We have also identified a number of recommendations for central and local
government which are necessary to accelerate the decarbonisation of homes
in the North but applicable elsewhere in the country.
1. Develop local authority heat plans.
2. Develop a local and combined authority planning strategy for low-carbon
     new homes.
3. Extend the national low-carbon housing grants until at least March 2022.
4. Bring an end to local authority austerity and introduce a fair funding model.

TABLE S.1: PROPOSED TIMELINE FOR THE HOME IMPROVEMENT PROGRAMME FOR THE NORTH
    Year                               Key step                                              Outcomes

            Formation of a Northern Housing Decarbonisation Steering
                                                                            Agreement of funding programme and
            Group with representatives from housing providers, Combined
                                                                            devolution of funding to combined and
    Early   Authorities, LEPs/the NP11, and BEIS’ regional energy hubs.
                                                                            local authorities in the North to administer
    2021    Negotiations with BEIS, MHCLG, and HMT on funding options       to social housing providers
            for social housing decarbonisation funding arrangements
                                                                            Regional campaign pilot to improve
            and commitment to long-term decarbonisation funding from
                                                                            awareness of home heating choices starts
            central government.

            Local authorities and combined authorities develop local heat
            plans in partnership with skills providers including colleges   Establishment of a Northern Skills Plan for
    2021    and universities.                                               housing decarbonisation setting out key
                                                                            devolution asks from combined authorities.
            Regional audit of housing stock quality across the North.
                                                                            Extended low-carbon housing grants end
            Housing decarbonisation menu available to social housing        in March.
    2022    providers following completion of the regional audit with       Regional campaign pilot ends and is
            appropriate interventions for key dwelling archetypes.          evaluated with lessons learnt for similar,
                                                                            national campaigns.
                                                                            A clear menu of options based on success
                                                                            in the social housing sector, significant
            Interim evaluation of the social housing decarbonisation        uptake in training programmes boosting
            programme for the North with publication of lessons learnt to   labour supply, and the development of
    2025    date and a technological options menu for different housing     supply chains in the North flowing from the
            archetypes which is aimed to inform owner occupiers and the     social housing decarbonisation programme
            private rental sector.                                          encourages accelerating uptake in other
                                                                            tenures of energy efficiency retrofit and
                                                                            decarbonised heat.

            All homes in the North attain EPC C performance or better.      Approximately 53,000 jobs are created in
            Social housing decarbonisation programme completes: all homes retrofit by this point.
    2030    in the North’s social sector have decarbonised heating systems. £23.6 billon, 50 per cent from government
            Evaluation of social housing programme and ‘lessons learnt’ to grant funding, has been invested in the
            review policy for owner occupied and private rental stock.      North’s social housing by this point.

                                                                            Approximately 77,000 jobs are created
            All homes nationally attain EPC C performance.                  across the programme by this point
    2035    Peak of economic impact related to this decarbonisation         boosting GVA nationally (directly and
            programme.                                                      indirectly) by £9.46 billion per annum (in
                                                                            current prices).
            Programme completes: all homes in the North have
    2050
            decarbonised heating systems.

Source: Authors’ analysis

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                                                                                                                           5
1.
    INTRODUCTION

    Decarbonising society is one of the biggest challenges that we have ever faced.
    The UK is responsible for 4.4 per cent of historic emissions, and if everyone around
    the globe lived like the average UK citizen, we would need 2.5 planets’ worth of
    resources to sustain civilisation (EJC 2020). Not only is decarbonisation necessary
    for the UK, but it also presents an opportunity for providing decent and sustainable
    work, and enabling everyone to live in safe, warm, and decent homes.

    Within the national picture, the North faces its own journey to decarbonisation. The
    home of the industrial revolution, much of today’s global emissions-related crises
    have their genesis in our past. Our region is well placed to drive us into a brighter
    future and benefit from the next phase of human development: decarbonisation.

    1.1 DECARBONISATION AS A PATH TO A NET ZERO FUTURE
    The UK is on a journey to a net zero carbon emissions future, with widespread
    political support for action to reduce UK emissions (CCC 2020). In the North, 64
    councils and combined authorities have declared a climate emergency, most
    setting a target date for achieving net zero, including by 2030, 2038, and 2050 in
    line with government policy (CACC 2020; BEIS 2019). However, the UK’s progress is
    not fast or substantial enough to build the long-term change needed to meet its
    target of net zero by 2050 (CCC 2020).

    Heating and hot water for UK homes account for one-quarter of our national
    energy use and 15 per cent of emissions (ibid). In order for UK housing to meet the
    UK’s goals in line with the Paris Agreement, a 24 per cent reduction is needed in
    direct emissions from households by 2030, and a 15 per cent reduction is required
    in energy used for heating by 2030 (CCC 2019a). Related emissions have declined
    significantly since 2013, but decarbonisation is not happening at sufficient speed
    or scale (Webb et al 2020). Heating, both for space and for water, dominates
    domestic energy use – accounting for 79 per cent together (61 per cent and 18 per
    cent respectively) (Morgan and Killip 2017) and the way in which heat is generated,
    predominantly by gas boilers, is the principle source of direct household emissions
    in the UK. Decarbonising household sources of heat and improving household
    energy efficiency thus represents a significant element of the decarbonisation
    of homes and their role in mitigation of and adaptation to further climate change.

    The UK has a unique retrofit challenge, with poor comparative energy efficiency
    and the oldest housing stock in Europe (ibid). The North’s housing stock is among
    the oldest in the UK – 24 per cent of homes in the North were built before 1919
    and 44 percent before 1944. Many homes are non-decent:1 A quarter of homes in
    the North East built before 1919 are non-decent, rising to 43 per cent in the North
    West, and 47 per cent in Yorkshire and Humber (Smith Institute 2018).

    1   The Decent Homes Standard (2006) centres on four statutory minimum standards, which is that homes
        should be free of category 1 hazards under the Housing, Health and Safety Rating System; be in a
        reasonable state of repair; have reasonably modern facilities and services; provide a reasonable degree
        of thermal comfort (Smith Institute 2018).

6   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
1.2 DECARBONISATION AS ECONOMIC STIMULUS
Housing decarbonisation could provide a significant economic stimulus for the
North and for national prosperity as part of our economic and social recovery
from Covid-19. By coordinating the necessary investment in Northern homes and
delivering at scale, there will be significant demand generated in the economy
which could ‘crowd in’ private investment over time. This report estimates this
impact by modelling one suggested pathway.

Coupling this with improvements to the training and skills system can provide a
whole-economy approach to decarbonising the North’s housing and capturing its
economic benefits.

1.3 DECARBONISATION AS A PATHWAY TO BETTER HEALTH AND WELLBEING
Housing quality is also an important social determinant of health and so the
decarbonisation of homes can also have a positive impact on health and
wellbeing, as well as reducing pressure on the NHS and social care services.

1.35 million homes in the North fail to meet decent home standards – many are
in the private sector and many are owned by older homeowners (Smith Institute
2018). Poor housing condition is dangerous. It is dangerous at all stages of life; for
children, it can impact on healthy development (including causing asthma) while for
older people cold, damp homes can exacerbate existing health conditions.

The North’s climate is wetter, cooler, less sunny, and windier than the South, and
indeed climate variation is also seen from east (drier, warmer, sunnier, less windy)
to west. There is also considerable variation across the North, including colder
winter temperatures in higher or more rural areas. This has a consequence for
the heating of homes and providing comfort.

1.4 THE POLICY CONTEXT FOR HOUSING DECARBONISATION
The wider context for this report is the government’s commitment to reducing the
UK’s greenhouse emissions to zero by 2050. Successive governments have seen
the challenge of climate change as an economic opportunity with ‘clean growth’
identified as one of four ‘grand challenges’ in the industrial strategy (BEIS 2018).

The clean growth strategy argues that improving the energy performance of the UK’s
buildings is simultaneously a challenge and an opportunity. It set an ambition for
‘as many homes as possible to be energy performance certificate (EPC) band C by
2035 where practical, cost-effective, and affordable’, and for all fuel-poor homes to
reach this target by 2030 (BEIS 2017). A heavily caveated target that we are not on
course to obtain without a drastic shift in our trajectory, nationally and regionally.
Meanwhile, BEIS is consulting on improving the energy performance of privately
rented homes in England and Wales with a preferred policy scenario being that all
new lets in PRS (private rental sector) are in properties that have an EPC rating of
C by 2025 and all PRS tenancies achieve this level by 2028 (BEIS 2020d). This would
be a considerable acceleration of targets in the PRS.

From a regulatory standpoint, the Committee on Climate Change (CCC) estimates
that residential buildings need to reduce emissions by 83 MtCO2e by 2050 – a
reduction of approximately 83 per cent (CCC 2019a) The challenge of meeting this
target is significant, particularly given that only 1.3 per cent of new housing met the
highest possible energy efficiency standards (EPC rating of A) in 2019 (MHCLG 2020c).
Moreover, more than two in three homes in the North have an EPC rating below C.
In addition, there are also embedded emissions from construction, and these can
account for up to “half of the carbon impacts associated with the building over the
course of its lifecycle” (Green Building Council 2020).

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To meet targets, existing improvements need to come from existing stock, though
    improvements are needed in standards for new homes. A further challenge is
    the effect of the abrupt cancellationof the ‘zero carbon homes’ standard for new
    homes in 2015. This is due to be replaced by the ‘future homes standard’ by 2025.
    The consultation for this new standard was completed in 2019 but the government
    are yet to publish their conclusions (MHCLG 2019)

    1.5 HOUSING DECARBONISATION: A DRIVER OF POST COVID-19 RECOVERY
    The economic crisis caused by the Covid-19 pandemic has prompted government
    to see decarbonisation as a key plank of the nation’s economic recovery as part
    of their ‘Plan for Jobs 2020’ announced as part of fiscal stimulus in July 2020 (HM
    Treasury 2020). This includes the following.
    •    Green homes grant: A £2 billion investment in reducing carbon emissions
         offering a grant for homeowners and landlords via a voucher towards the cost
         of installing energy efficiency improvements (BEIS 2020b). The voucher covers
         up two-thirds of improvements up to a maximum of £5,000 generally or full
         cost up to £10,000 for low-income homes. The scheme is time-limited with
         vouchers redeemed by March 2021. Local authorities have also been invited
         to bid for a share of the £2 billion (approximately £500 million) to allocate in
         their areas for all tenures (Heath 2020b). Government argue that this will help
         to improve 600,000 homes and support 10,000 new jobs.
    •    Public sector decarbonisation scheme: Provides grants to public sector
         organisations to fund energy efficiency and heat decarbonisation initiatives.
         Eligible organisations can apply for up to 100 per cent of grant funding for their
         scheme, limited by a maximum ratio of £500 per tonne of carbon (CO₂e) saved
         over a project’s lifetime. Projects are required to be completed by March 2021
         (Salix 2020). This has been developed alongside the public sector low carbon
         skills fund which is a £32 million scheme which is also managed by BEIS and
         a delivery body, Salix Finance.
    •    Social housing decarbonisation fund demonstrator (SHDF demonstrator): A
         £50 million programme2 which aims to support social landlords to adopt new
         approaches to improving homes for higher energy efficiency, reduced carbon
         emissions and lower household bills (BEIS 2020e). The scheme is an add-on
         to the existing whole house retrofit innovation competition. It encourages
         applications from local and combined authorities to work with social landlords
         to deliver housing decarbonisation at scale. The deadline for this grant was
         October 2020 with decisions on successful bids expected in December 2020,
         and schemes completed by 2022. There is some suggestion that this fund
         may be a pilot project for a larger 10-year social housing decarbonisation
         fund, originally promised at £3.8 billion in the Conservative party’s selection
         manifesto (Heath 2020a).

    These new initiatives are intended to support existing decarbonisation efforts,
    including the work of energy hubs. There are five energy hubs across England
    (Midlands, North East and Yorkshire/Humber, North West, South East, South
    West). These operate at arm’s length from BEIS. They aim to increase public
    sector capacity, including combined and local authorities, to develop energy
    schemes. While the remit is broader than housing decarbonisation, they can
    play a supporting role. Energy hubs also administer specific grants to support
    decarbonisation including the rural community energy fund.

    2   £38 million in England, up to £3 million in Wales, up to £2 million in Northern Ireland and up to £7 million
        in Scotland.

8   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
2.
A ROADMAP FOR GREEN
ECONOMIC STIMULUS:
THE TASK AND ITS BENEFITS

Decarbonising the North’s housing is a necessary part of our net zero journey.
However, several potential pathways to this journey exist. This section presents a
pathway that takes immediate action while making the case for the economic benefits.

2.1 THE SCALE OF THE TASK
IPPR previously identified the need for 21 million homes across the UK to receive
energy efficiency measures, 19 million homes to have heat pumps installed, and 5
million homes to be connected to heat networks in order to decarbonise UK housing
(Webb et al 2020). Within that, decarbonising the North’s 6.8 million homes is a
monumental challenge. Regional analysis of the identified pathway suggests the
need for around 5 million homes to be retrofitted broadly to achieve an EPC rating
of C with additional measures to improve energy efficiency in some EPC C homes
to meet requirements for decarbonised heat technologies, 4.6 million homes to have
a heat pump installed, and 1.1 million homes to be connected to heat networks.

Economic benefits in this section are estimated on achieving an EPC rating of C
across all tenures in the North by 2030 and full installation of heat pumps and
heat networks to fully decarbonise heating systems by 2050.

TABLE 2.1: A HOME IMPROVEMENT PLAN FOR THE NORTH REQUIRES 5 MILLION HOMES
TO BE RETROFITTED FOR IMPROVED ENERGY EFFICIENCY AND 5.7 MILLION HOMES TO
RECEIVE ZERO-CARBON HEATING SYSTEMS
Regional analysis of the home improvement plan for England

                                                                                              Connections to a
     Proposed interventions                      Retrofit             Heat pumps
                                                                                               heat network

 North East                                      885,700                 808,800                   334,000

 North West                                      2,409,900               2,158,100                  497,600

 Yorkshire and the Humber                        1,718,800              1,596,000                   252,300

 North                                           5,014,400              4,562,800                 1,083,800

Source: Author’s analysis of Webb et al (2020)

Note: Numbers may not sum due to rounding. These figures are estaimtes and there is significant uncertainty about
the detail of housing stock, future technological advancements, and the impact of this on applicable interventions
required. This should be borne in mind when interpreting these figures.

                IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North             9
BOX 2.1: Choosing the right technological pathway to act quickly
         The pathway presented in this report recommends that heat pumps3
         become the main source of domestic heating – with heat networks where
         household density makes that feasible. This is the principle assumption
         of the plan and impact analysis in this report, building on recent IPPR
         research, which highlighted that heat pumps face fewer barriers than other
         technological pathways to rapid rollout. This conclusion is rooted in three
         key considerations (Webb et al 2020):
              1.   Technological readiness
              2.   Cost for consumers
              3.   Energy security and supply chains

         Technological readiness
         Given the urgency, we prioritise heat pumps and networks because they
         are already available. This is not to say that the often-posited pathway of
         replacing natural gas with hydrogen in both the gas network and household
         boilers is not possible or scalable. It is an assessment that hydrogen is far
         from ‘shovel-ready’ and does not yet appear to be able to offer a genuinely
         zero-carbon pathway due to the manner of its production.
         Ground, air and water source heat pumps are powered entirely by
         electricity which can be generated by zero-carbon means. It is technically
         feasible (though highly challenging) to decarbonise the national grid with
         existing technology, and significant potential for this to become easier with
         improvements and potential rapid cost reductions (CCC 2019b).
         Heat networks, the majority of which provide both heat and power, have
         various fuel sources including natural gas, biofuels, biomass, biogas,
         or municipal waste – and potentially in the future hydrogen too. Their
         relative flexibility provides for their being a ‘no-regrets’ option. Heat
         networks improve efficiency regardless of their fuel (including fuel which
         emits carbon) when compared to standard use of gas boilers in domestic
         settings, and decarbonising their fuel is relatively straightforward (Emden,
         Aldrige and Orme 2017) and likely to become easier in future.

         Cost for consumers
         Current estimates suggest that running costs for households in
         hydrogen-dominant and heat-pump-dominant scenarios are comparable
         when operated as designed. Moreover, the future price of heat pumps is
         expected to fall significantly (Webb et al 2020).

         Energy security and supply chains
         Energy security is a considerable challenge for nations and regions in
         the 21st century. Research suggests that the hydrogen supply chain will
         necessitate an increase in natural gas imports, worsening rather than
         improving energy secure. Renewable energy generation meanwhile is
         more secure and unit costs are (and have been) falling (ibid).

     3   Air, ground, and water source heat pumps are a means of electric central heating.

10   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
2.2 RETROFIT AND ENERGY EFFICIENCY MEASURES
Improving energy efficiency in housing stock is an essential part of decarbonising
housing stock. This applies regardless of technological pathway.

Data availability on the energy efficiency of the North’s housing stock is poor,
though detail and quality of information on local housing conditions is much
better in the social housing sector. However, this information is unstandardised
and often incomparable between housing associations. Local breakdowns of main
source of heating, existing insulation and other crucial elements required to classify
housing archetypes and estimate the necessary interventions required are simply
unavailable, and regional breakdowns do not provide a sufficiently rich picture to
identify at that level the exact retrofit measures required (MHCLG 2020a).

However, it can be estimated that two-thirds of the North’s housing stock, some
4.6 million homes, do not meet an EPC C standard (ibid). All of these homes would
require retrofit by 2035 to meet the government’s target with additional measures
required in certain circumstances to meet the design parameters of a heat pump
heating system (Webb et al 2020).

In this report, and in its economic impact analysis, primary interventions are:
•    cavity wall installations and upgrades
•    solid wall installations and upgrades
•    loft insulation installations and upgrades.

Energy efficiency installations and upgrades of this type (herein referred to as
retrofit) are high turnover, high employment activities where increasing demand
has large employment impacts (Laybourn-Langton et al 2017).

The future of retrofit is highly uncertain (Morgan and Killip 2017), and especially when
considering future maintenance, product lifespans, and the impact of consumer
behaviour on maintenance needs and timeliness of replacement. Additional retrofit
elements can be implemented quickly and cheaply, including replacing doors and
windows – however natural replacement rates suggest already positive trends (ibid),
which might not require additional impetus beyond ‘whole-house approaches’.

Research modelling the implementation of large scale retrofit in the UK has
predicted a highly uneven rate of installation with respect to many measures,
including heating systems (ibid) with uneven demand which creates a challenge
for instilling confidence in the sector which is required for the development of
sustainable, home-grown supply chains and sufficient skills provision. In this
vein, a large scale publicly funded housing decarbonisation programme – initially
focusing on the social housing sector as a countercyclical investor in this current
period of severe economic contraction – presents the best route.

2.3 THE ECONOMIC CASE FOR HOUSING DECARBONISATION IN THE NORTH
Decarbonising housing presents substantial opportunities for the North. These
include job creation, savings on energy bills, reducing fuel poverty, and healthier
lives lived in warmer, healthier homes.

The need for a net zero stimulus for the North
Far too often, economic policymaking in the UK has focused on supply-side
approaches (Laybourn-Langton et al 2017). To face up to the true scale of the
challenge required post-Covid-19, not least to meet the UK’s net-zero mission, a
supply-side approach alone will not cut it (Laybourn-Langton et al 2017). Moreover,
the UK’s often ‘spatially blind’ economic approach has benefitted particular sectors
and regions outside of the North despite not being designed to do so explicitly
(Raikes 2019). A large, regionally-informed stimulus package will help regions like

            IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North   11
the North to recover – mitigating the longer-term costs of mass unemployment,
     hysteresis, and depressed demand that is likely to occur.

     Away from the immediate crisis, the North needs sustained investment to prepare
     it for the future. The question of where low-carbon energy technologies should
     be deployed is just as important as which ones and how much of each (Emden
     and Murphy 2019). This too is true of where national, regional, and local industrial
     strategy considers and promotes the location of supply chains. Decarbonising
     housing in the North represents a massive demand-side boost for the economy,
     well in keeping with the government’s levelling up agenda.

     The absence of such stimulus could see a levelling down. The North is highly
     exposed to the transition to a decarbonised economy because of potential job
     losses associated with the removal of carbon intensive technology. The North’s
     economy is more carbon intensive than the average for the English regions
     (Laybourn-Langton et al 2017), highlighting need for a just transition (Emden
     and Murphy 2019).

     Job creation
     At the national level, estimates vary but suggest large opportunities. 34,000 full-
     time equivalent (FTE) jobs within the next two years could be created by investing
     in energy efficiency measures only (EEIG 2020), while 325,000 jobs could be created
     by 2035 nationally by pursuing the suggested pathway (Webb et al 2020).

     Building on this analysis by IPPR (ibid) to scope the specific economic opportunity
     for the north of England, we estimate that the North could see direct demand for
     approximately 77,000 jobs by 2035 (Webb et al 2020; Jung and Murphy 2020).

     2035 would represent the peak year for the proposed programme and assumes
     ‘s-shaped’ curves in terms of the adoption of heat pumps, heat networks, and
     retrofit activity. Taking a fabric-first approach4 requires jobs in retrofit to be
     created very rapidly and at scale. Meeting a 10-year target demands most retrofit
     jobs to be created very early in the programme. Our estimates suggest that the
     majority of the 53,000 retrofit related jobs would be created by 2030 (in line with
     Webb et al 2020) while jobs in installing decarbonised heating systems would peak
     at a later date – approximately around 2035 (ibid). Subsequently, the sooner that
     you can begin the programme of decarbonisation, the more jobs you can begin to
     create and the more impactful the economic impact could potentially be for the
     north of England.

     4   Fabric-first approaches prioritise first the building fabric like insulation, then improving or replacing
         heating systems, and then additional measures such as on-site microgeneration of renewable energy.

12   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
FIGURE 2.1: THE NORTH COULD GAIN 77,000 DIRECT JOBS BY DECARBONISING ITS
HOUSING STOCK
Number of direct jobs that could be created by technology by region by 2035
12,000,000

10,000,000

    8,000,000

    6,000,000

    4,000,000

    2,000,000

                0
                          North                North West            Yorkshire and              North East
                                                                      the Humber
                            Retrofit             Heat Pumps            Connections to a heat network

Source: Author’s analysis of Webb et al 2020

TABLE 2.2: THE NORTH COULD GAIN 77,000 DIRECT JOBS BY DECARBONISING ITS
HOUSING STOCK
Number of direct jobs that could be created by technology by region within the
North by 2035

                                                                                                  Yorkshire and
    Potential jobs                      North            North East           North West
                                                                                                   The Humber
    Retrofits                          53,000               9,000                26,000               18,000
    Heat pumps                          13,000              4,000                 6,000                3,000
    Heat networks                       11,000              2,000                 5,000                4,000
    Total                               77,000              15,000               37,000               25,000

Source: Author’s analysis of Webb et al 2020

Note: Numbers may not sum due to rounding. These figures are estimates and there is significant uncertainty about
total job creation related to preferred technologies, rates of adoption and the correct interventions (and at what
point) for different housing stock archetypes. This should be borne in mind when interpreting these figures.

Supply chain job opportunities
This scale of investment would not only support those directly involved in the
installation of measures – such as heat pump installers, heating engineers,
plumbers, joiners, labourers, window fitters and so on – but in supply chains too.

We estimate that such a programme in the North could support 111,000 indirect
jobs in wider supply chains at the UK level.5

5      It must be noted that the calculations used to derive this figure assume that inter-industry relationships
       described by the UK input-output analytical tables (ONS 2020a) remain constant under the investment.
       Given the size of investment, it is likely that supply chains will shift and this could alter the actually
       observed indirect employment generated.

                    IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North         13
This figure is calculated by estimating the industrial structure of job creation
     estimates identified in recent IPPR research (Jung and Murphy 2020; Webb et al
     2020) and considering further evidence on the employment profile of different
     interventions (ETI 2018; HPA 2019; Laine 2020; Emden, Aldridge and Orme 2017;
     Kammen, Kapadia and Fripp 2004) and the UK input-output analytical tables
     (ONS 2020a). Altogether, we estimate a high indirect6 employment multiplier
     of around 2.4.

     While energy efficiency is particularly labour intensive, the installation of heating
     systems, such as heat network energy centres, can be capital intensive (ETI 2018).
     The manufacture of heat pumps, hydraulic interface units, and other necessary
     elements of a plan to decarbonise housing presents an opportunity to capture
     further economic benefits.

     Commitment to funding a large-scale decarbonisation project could provide
     the necessary certainty to encourage the growth of home-grown supply chains,
     ensuring that employment in low carbon supply chains is located in the North
     and instil confidence for training and skills providers (Emden and Murphy 2019).

     The opportunity for using supply chain development to help address the deep
     regional inequalities in the UK across a variety of economic and social outcomes
     (Raikes, Giovannini and Getzel 2019) should not be overlooked. Indeed, the UK’s
     construction supply chain is domestic and often highly localised, with particular
     strength in the Midlands and the North (HM Government 2018)

     2.4 CONSUMER SAVINGS FROM REDUCING FUEL POVERTY AND
     ENERGY EFFICIENCY
     A concerted effort to improve energy efficiency through retrofit and installing
     decarbonised heating systems can also address fuel poverty.

     There are approximately 731,500 fuel poor homes in the North – around 11 per
     cent of households (BEIS 2020c). This is higher than England overall (10.3 per cent).
     Fuel poverty is highest nationally in the North West (12.5 per cent). Of the 10 local
     authorities with the highest precedence of fuel poverty, seven are in the North
     West. Those local authorities are:
     •   Liverpool (highest in the North and 3rd nationally) at 15.6 per cent
     •   Manchester (2nd in the North and 4th nationally) at 15.5 per cent
     •   Blackpool (3rd and 5th) at 15.2 per cent
     •   Pendle (4th and 6th) at 15.2 per cent
     •   Eden (5th and 7th) at 14.7 per cent
     •   Blackburn with Darwen (6th and 8th) at 14.6 per cent
     •   Barrow-in-Furness (7th and 9th) at 14.4 per cent.

     There is considerable concentration of fuel poverty in certain locations,
     particularly the large cities of the North as shown in figure 2.2 below.

     Improved energy efficiency measures can improve comfort drastically while
     reducing energy bills. Together this could help tackle fuel poverty and improve
     quality of life. However, during discussions with stakeholders concerns were raised
     that new sources of heating – and particularly air-source heat pumps – can result
     in large increases to household energy bills if the consumer does not adapt to the
     different way that heat pumps are operated compared to traditional.

     People on low incomes often need to make unacceptable choices between heating
     or eating (Webb et al 2020) and stakeholders told us that people often run their gas

     6   or 'Type I'

14   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
boilers for hot water and heating for a limited period (often one or two hours) to
keep bills down. Indeed, there is clear evidence that lockdown in poor-quality, non-
decent homes in the North has given rise to a disproportionately negatively impact
on people’s health and wellbeing. During the first lockdown period, the condition
of poor quality housing worsened and there was a significant increase in energy
usage, which caused further anxiety for many people who were struggling prior to
the pandemic or who had new-found experience of income precarity. This relates
particularly to poor thermal comfort or the lack thereof, which is likely to worsen
over the course of the winter and second period of lockdown (Brown et al 2020)

But, this consumer behaviour can increase costs in decarbonised heat-source
scenarios like a heat-pump pathway. This speaks to the low consumer awareness
of heat pumps and the importance of awareness raising and education in any
future schemes.

It also highlights the need to demonstrate that decarbonised heat sources either
can or will be cheaper to run alternatives. The price of renewable energy is falling
– and this is projected to continue. For example, offshore wind has fallen from
around £150/MWh to £40 in recent years (CCC 2020).

FIGURE 2.2: FUEL POVERTY IS HIGHLY CONCENTRATED IN PARTICULAR AREAS, ESPECIALLY
THE LARGEST CITIES IN THE NORTH
A heatmap of households in fuel poverty by LSOA in the north of England

                                              Newcastle upon Tyne
                          Carlisle

                                                     Durham

                                                        Ripon
                           Lancaster
                                                                   York

                                                       Leeds
                                                                          Kingston upon Hull
                              Preston
                                                      Wakefield

                                       Manchester
                        Liverpool
                                                       Sheffield

                          Chester

Source: BEIS (2020c)

                IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North   15
Previous research has shown that in new-build properties with high energy
     efficiency standards, savings generated by heat pump heating are higher, saving
     £85 per household per year across the life of the build, than the same energy
     efficiency measures with a gas boiler, saving £55, when compared to current
     standards of new-build properties. It has been estimated that energy conservation
     measures can reduce energy costs for tenants by up to 40 per cent, a significant
     saving (Smith Institute 2018, Verco and Cambridge Econometrics 2014). In 2014,
     modelling by Verco and Cambridge Econometrics (2014) found that average
     energy bill savings for low income homes (accounting for comfort take7) was
     £245 per annum and £416 for other homes.

     2.5 THE SCALE OF INVESTMENT REQUIRED TO DECARBONISE THE
     NORTH’S HOMES
     Previous IPPR analysis estimated that a national programme would cost £10.6 billion
     per year to 2030 and £7 billion per year from 2030 to 2050 – not including heat
     networks (Webb et al 2020). We estimate that the pathway for the North outlined in
     this report would demand a total of £143.07 billion investment, which concentrated
     to a ten-year period would equate to an annual investment of £14.31 billion.

     Incorporating further information based on our discussions with stakeholders, the
     English Housing Survey (MHCLG 2020a), Currie and Brown (2019), and Myers et al (2018)
     has allowed us to create preliminary cost estimates for a decarbonisation programme
     of all tenures in the North – including estimating the costs of heat networks.

     TABLE 2.3: TO BE ACHIEVED OVER A 10-YEAR PERIOD, OUR HOME IMPROVEMENT PLAN FOR
     THE NORTH WOULD REQUIRE £14.31 BILLION INVESTMENT PER ANNUM OVER 10 YEARS
     Estimating the total and average costs of the home improvement plan for the North

                                                                                                        Annually if
                                          Total                                Average cost per
                                                                                                      concentrated
                                     interventions        Total cost (£bn)     home under the
                                                                                                      over a 10-year
                                        (homes)                                 programme (£)
                                                                                                       period (£bn)

         Retrofit measures               885,700                96.62                19,300                 9.66

         Heat pumps                     2,409,900                5.39                 5,000                 0.54

         District heat
                                        1,718,800               41.07                 9,000                 4.11
         networks

         Total                          5,014,400               143.07                                      14.31

     Source: Authors’ analysis of Webb et al 2020, Currie and Brown 2019, Delta Energy and Environment Limited, and
     stakeholder discussions
     Note: figures may not sum due to rounding.

     It should be noted however that there is significant uncertainty in these figures, and
     it does not account for falling prices over time, which we expect for measures such
     as heat pumps to take place in the next decade. Indeed, Currie and Brown (2019) find
     that a central combined cost for installation and product costs indicates a fall of 89
     per cent in installed cost by 2030 on 2017 prices – a significant saving.

     Estimating costs for retrofit is difficult because of considerable variation in
     prices both in terms of the required measures and geographically. Stakeholders

     7      Comfort take describes the idea that homes with fuel poor residents often underheat their homes and this
            behaviour is often overlooked in modelling. It could be that after energy efficiency measures are installed,
            residents who previously underheated their homes might seek a higher level of thermal comfort which has
            become more affordable and therefore mitigating some of the otherwise modelled savings.

16   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
highlighted that there are significant variations between regions, for example it
was suggested that prices are up to £3,000 higher for heat pump installation in
London than in Humberside.

Meanwhile, discussions with housing associations highlighted significant variation
in per dwelling costs, ranging from £15,000 to £45,000. Most approaches are ‘whole-
house’, taking improvement measures, including insulation and heating systems,
together. However, ambition expressed in our discussions varied greatly in terms
of standards – from aiming for EPC ratings of C through to aiming for homes to be
net zero and self-sufficient in energy – with associated different costs. Our research
also highlighted that there is variation because of the different pathways planned,
including retrofit standards, heating systems, and energy generation. Variation
in costs also arises because of varied stock quality, especially EPC classification
(ie higher numbers of properties with low EPC ratings cost more to retrofit). In
addition, age and density of stock, all influence a provider’s ability to make
‘area-based’ savings at scale.

2.6 OUR PROPOSAL: A HOME IMPROVEMENT PROGRAMME FOR THE NORTH
This chapter has outlined a proposed pathway for decarbonising the North’s
housing. Broadly, a retrofit programme which upgrades all of the North’s housing
stock to an EPC rating of C by 2030. This also includes further retrofit measures
that may be required to maximise the effectiveness of heat pumps, alongside
the actual installation of heat pumps and heat networks.

We estimate that this could improve more than 5 million homes, creating around
77,000 direct and supporting 111,000 indirect jobs with an investment of £143.07
billion required.

We estimate that these jobs could generate around £3.85 billion direct GVA per
annum in the North and an additional £5.61 indirect GVA per annum across the UK.8
There would be further economic benefits than are recorded here, including induced
impacts from spending of employees supported by this stimulus programme in local
economies, benefits in terms of business expansion, new start-ups seeking to play
a role in supply chains, and so on.

A programme which prioritises investment in social housing
To deliver this programme, we recommend that the investment should be
targeted at the social housing sector. The sector has the scale, institutional
memory, and geographic spread around the region to develop, roll out, and
evaluate a large-scale decarbonisation programme in partnership with combined
and local authorities. Building momentum in social housing, could in turn help
drive market demand and skills adoption which could in time, lower costs and
encourage take up by other tenures.

18 per cent of housing in the North is social housing9 (MHCLG 2020b), some 1.27 million
homes. Decarbonising this stock would contribute significantly to emissions targets,
is large enough to encourage supply chain development and demand for skilled
labour, and would be located in a sector which has historically demonstrated its
ability to manage large-scale projects effectively, such as delivering improvements for
1.4 million homes at a cost of £37 billion under the decent homes programme from
2001-2011, around half of which was government funding (Smith Institute 2018).

8   These estimates assume that those jobs were in operation, generating GVA, today and are in 2018/19
    prices. These estimates also assume no leakage, displacement, substitution at the national level, and
    incorporate analysis from ONS 2020b.
9   Defined here as either rented from housing associations or from local authorities or other public sector.

              IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North          17
We would estimate that the 1.03 million social homes need to be upgraded under a
     home improvement programme for the North. This is an imperfect estimate, which
     adjusts the total number of social homes in the North proportionately to the wider
     home improvement plan with additional English Housing Survey data (MHCLG
     2020a). However, a significantly more detailed analysis of stock in the North is
     required to accurately depict the true scale of the challenge, costs, and benefits.

     In light of the need for an economic stimulus for the North, the role of the social
     housing sector in pump-priming supply chains, we argue for the North’s social
     housing to be a pilot for home improvement with a 10-year programme from
     2020 to 2030 with a total investment required of £2.36 billion in the programme.

     TABLE 2.4 IN TOTAL FOR OUR HOME IMPROVEMENT PLAN FOR THE NORTH, THE SOCIAL
     HOUSING SECTOR WOULD SEE AN INVESTMENT OF £23.57 BILLION
     Estimating the total and average costs of the home improvement plan for the North

                                                                                                        Minimum
                                                         Average cost
                                                                               Annually over a         government
                                                           under the
                                 Total cost (£bn)                              10-year period         grant funding
                                                        programme per
                                                                                   (£bn)             annually over 10
                                                          property (£)
                                                                                                       years (£bn)

      Retrofit measures                15.08                 16,500                   1.51                  0.75

      District heat                     0.98                  5,000                   0.10                  0.5

      Heat pump                         7.50                  9,000                  0.75                   0.38

      Total                            23.57                                         2.36                   1.18

     Source: Authors’ analysis of Webb et al 2020, Currie and Brown 2019, CCC 2019a, Delta Energy and Environment Limited,
     MHCLG 2020b and stakeholder discussions

     2.7 FUNDING THE HOME IMPROVEMENT PROGRAMME
     There are different models by which this investment could be sourced. In light of
     the clear economic benefits of decarbonisation as a stimulus, and the importance
     of meeting emissions targets, we argue that at least 50 per cent of the investment
     required for the social housing sector should be government investment to pump-
     prime the stimulus, which could be fed into the social housing decarbonisation
     fund – or as part of a pilot programme in the North.

     This would equate to a minimum £11.78 billion over 10 years or £1.18 billion required
     annually from government. This would be matched by social housing providers’
     contributions through their existing resources or raising private finance. IPPR has
     previously recommended a blended approach, dividing costs evenly, including
     recommending that the Bank of England work with financial institutions to reduce
     the risk profile of decarbonisation activity to reflect the environmental (and, as
     revealed in this research, economic) benefits, thus reducing borrowing costs
     (Webb et al 2020).

18   IPPR NORTH | Northern powerhomes A green recovery plan to decarbonise homes in the North
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